The Facts About IRAs

The average amount paid monthly by the Social Security Administration in the form of benefits is $1,237 for a retired worker?2

Everyone dreams of a retirement free from financial worries.

But many people are behind schedule when it comes to planning for retirement.

If you’re among them, consider an Individual Retirement Account (IRA).

It can be an important part of your retirement plan. Since almost anyone who has earned income can open an IRA, it’s something you should seriously consider.

IRAs enjoy special tax advantages, but the rules can be confusing. This article can help explain some of the basics.

Contribution limits

There are limits on how much you can contribute to your IRA each year. Those limits are raised periodically (in 2013, the limits are $5,500 for people under 50 and $6,500 for people 50 and older).

The deadline for making a contribution to an IRA for the year is the due date of your tax return, not including any extensions of time to file. However, to maximize the time for potential growth of your IRA contribution, it makes sense to make it at the beginning of the year.

You don’t have to contribute the maximum amount to an IRA.

There are two types of IRAs for individuals – Traditional and Roth.

1) Traditional IRAs

Eligibility

To contribute to a Traditional IRA, you must have earned income and be under age 70 ½.

You can also make a contribution on behalf of your non-working spouse if your spouse is under the age of 70 ½ and you file a joint tax return.

Taxes

The tax deductibility of your contribution depends on your income, filing status, and the status of your participation in your employer’s plan. Even if you don’t quality for the tax-deductible status of a Traditional IRA, you can probably still contribute to one.